For the first time, the Norwegian courts have ruled in a case regarding the scope of the parent company guarantee (PCG) for licensees on the Norwegian Continental Shelf. The Borgarting Court of Appeal recently overturned a district court judgment and largely accepted the Norwegian government's interpretation of the PCG's scope of applicability. Although the ruling, which is likely to be appealed, provides some clarity, the question of whether tax claims are covered was not resolved.
Operators and non-operating petroleum licensees on the Norwegian Continental Shelf must establish emergency preparedness and implement measures to deal with any risks to their petroleum activities. Traditionally, this emergency preparedness planning has been directed towards conventional risks, such as non-deliberate accidents and emergencies resulting from human mistakes, technical errors or weather conditions. However, cybersecurity is also becoming a major concern for the oil and gas industry.
An increased number of corporate transactions and mergers have been observed in the oil and gas sector on the Norwegian Continental Shelf (NCS) in recent years. Several oil majors and traditional utilities and downstream companies have reduced their presence and broad portfolio sales and swaps of NCS licences have become increasingly common. These changes in trends are highly relevant for the government, which aims to maintain a high level of activity on the NCS.
In 2016 the Ministry of Petroleum and Energy announced that in all future corporate transfers subject to ministry approval it would consider requiring security from the seller establishing a secondary liability for future decommissioning costs. The ministry will require any seller of a licensee or of a licensee's parent company to provide an unlimited parent company guarantee. However, questions have been raised about the robustness of the security achieved by the guarantee.
Following the recovery and stabilisation of oil prices, an increasing number of oil companies on the Norwegian Continental Shelf (NCS) are looking for new ways to advance developments by cooperating with contractors. Some companies are looking for a stronger commitment from their suppliers and have introduced a cooperation scheme whereby the parties share a greater portion of risk for profit or loss. However, a number of challenges may arise from such contractual structures with regard to NCS projects.
The Borgarting Court of Appeal recently rendered its judgment in a case of major importance for the upstream Norwegian Continental Shelf (NCS) industry, natural gas buyers in Europe and the Norwegian government. If the judgment becomes final and binding, it will benefit the European gas supply. However, it may be a rude awakening for institutional investors in NCS infrastructure.
An inexperienced operator on the Norwegian Continental Shelf with a relatively small organisation may invoke a need for non-operators to direct particular attention to the operator's contract award procedure; while reduced capacity of non-operators may affect their ability to contribute to joint venture operations and to exercise the required control. Consequently, it is essential that non-operators have sufficient available resources to fulfil their commitments.
In the early 2000s the Norwegian authorities introduced several measures to stimulate exploration and production activities on the Norwegian Continental Shelf (NCS). The number of applicants in the 2016 NCS licensing round in pre-defined (mature) areas dropped to 33 from 47 in 2014 and 43 in 2015. In light of this, it is useful to examine the existing NCS market and some of the fundamental drivers and trends looking ahead.
Any subsidiary company holding a production licence on the Norwegian Continental Shelf must provide to the Ministry of Petroleum and Energy a standard parent company guarantee (PCG) covering its obligations relating to the petroleum activities in which it participates. As the scope of the PCG and who is entitled to claim under it has been subject to discussion, this update seeks to clarifies these issues.
For many decades, the Norwegian continental shelf (NCS) has offered great opportunities for petroleum exploration and production. While many areas are now mature, virgin areas still remain. Applications for acreage in the 23rd NCS licensing round were due in November 2015. The applications submitted indicate that, despite lower oil prices and a high-cost, high-risk environment, there is still reasonable interest in exploration in the far north.
A recent dispute involving pollution caused by an onshore decommissioning facility serves as a practical example of how the last phase of petroleum production activities may have a detrimental impact on the environment and third parties, and raises the question of the scope of liability under the Petroleum Act for petroleum licensees in relation to onshore decommissioning activity.
Norwegian Total Contract 2015 Modification ('NTK 15 Mod') is a standard contract for EPC(I) offshore modification projects on the Norwegian continental shelf. In an EPC(I) contract for modification of a platform, the contractor performs engineering, procurement, construction and possibly installation of work. NTK 15 Mod is part of a standardisation process initiated by the government to facilitate cost-efficient contracting.
In 2013 petroleum activities on the Norwegian Continental Shelf were exempted from the European Economic Area and EU rules on procurement included in the EU Utilities Directive. But how often have joint ventures on the Norwegian Continental Shelf used single sourcing since the exemption was granted?
During the past 10 years, the high-yield bond market has provided an alternative source of funding for less-developed companies and projects. To a large extent, this is a result of capital needs in projects for which traditional bank financing has been difficult to obtain, especially on competitive terms. Players in the renewable sector are therefore beginning to look to the bond market as a source of financing.
Article 30 of Directive 2004/17/EC contains an exclusionary provision for sectors which are directly exposed to competition, on approval of the European Free Trade Association Surveillance Authority. Several Norwegian power producers recently submitted a request to the authority for the application of Article 30.
Investing in wind power is becoming increasingly popular in Norway due to stable winds, an efficient market for physical delivery and hedging of exposure, and possibilities for foreign ownership. Recent legislation which provides financial support for new projects through the issuance of energy certificates that are tradable in Norway and Sweden has led to renewed interest in this sector.
The new green certificates bill, which was passed in June 2011, provides for the establishment of a market mechanism that will give renewable power producers green certificates based on actual power production. Power purchasers will have a statutory duty to buy the certificates, which must be redeemed every year, based on annual power consumption.
A report delivered by a committee comprising representatives from the oil industry and government administration in 2010 has proposed a shift of focus from exploration to development of existing fields that will favour the mayor players on the Norwegian Continental shelf. However, some of the proposals have been seen as controversial, such as the proposed changes to the voting rules in joint operating agreements.
To achieve flexibility in the electricity sector and market, and to ensure that the organisation of the sector helps to improve expertise and innovation, the Industrial Licensing Act has been amended to give domestic and international, and public and private, companies the opportunity to lease already built hydropower plants for a period of up to 15 years.
The Extractive Industries Transparency Initiative is designed to establish transparency within the oil, gas and mining industries regarding payments. The government recently passed changes to deal with the conflict between the obligation to report under the regulation implementing the initiative, and the duty of confidentiality of government administrative agencies.